VANDERBILT (US) — Title loans may be expensive, but they don’t usually result in people losing their cars—or their way to work—according to new research.

Title loans are high-cost, short-term small loans secured by a vehicle that the borrower usually owns outright. Many people who are shut out from the mainstream banking system use such loans, along with payday loans.

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The most common term for title loans is one month, and the interest rate is usually around 300 percent—when expressed as an annual percentage rate.

If the borrower defaults on the loan, the lender can repossess the borrower’s vehicle.

“Repossession affects few borrowers, and our evidence indicates that most borrowers will not lose their only way to work because of repossession,” says Paige Marta Skiba, associate professor at Vanderbilt Law School. “Thus, prohibitions on title loans based on the premise that borrowers are frequently losing their vehicles are misguided.”

The researchers surveyed 400 title loan customers in three states (Georgia, Idaho, and Texas) in partnership with a title lending firm in November and December 2012. The three states have distinct approaches to regulating title loans, but enough similarities to allow meaningful comparisons.

The study, published in the University of Illinois Law Review, showed that less than 10 percent of vehicles involved in title loans ended up being repossessed. Moreover, less than 15 percent of borrowers say they had no other way to get to work if their car were repossessed.

“While not insignificant, this small percentage suggests that the dire consequences that critics predict are unlikely to occur for the vast majority of title borrowers,” Skiba says. “Rough calculations would place the percentage of title borrowers who lose their jobs as a result of title lending at 1.5 percent.”

Regulators could be of some help to title loan consumers, Skiba says. The research shows that most title loan customers are overly optimistic that they will pay back their loans on time, which means the loan ends up costing them much more than they believe it will when they first receive it.

“Policymakers should require that title lending companies post information about how people actually use title loans: information about the number of times people roll over their loan, the amount of money those rollovers cost in total, the number and amount of late fees and other fees people pay, and the likelihood of defaulting on the loan,” the study reads.

“Research has demonstrated in real world markets that disclosure rules can be used to inform people about how others use the loans, which can change their expectations about their own use of the product.”